22 July 2023

A work in progress

By MT Finance

As an increasing number of homeowners are discovering the power of a regulated bridging loan, so too are they tapping into its versatility and how it can be used to fund renovations.

It’s been just over two years since we launched our regulated bridging offering here at MT Finance – right in the middle of the so-called race for space – and much has changed since then. For a start, the property market has started to slow, partly due to the impact of 2022’s mini-Budget as well as soaring interest rates and the impact of the cost of living rises. Despite these challenges, the demand for regulated bridging has remained consistent. In fact, the latest figures provided by Bridging Trends show that the portion of regulated transactions reported by contributors rose from 43.8% in Q4 2022 to 46.2% in Q1 2023.

Redevelopments retain popularity

This is in-line with what our regulated team has been seeing here. While there is always a mix in purposes, we are noticing a sustained demand for loans to fund residential redevelopments. On the surface this is nothing new and simply a continuation of the past two and a half years. As many homeowners found themselves either outpriced during the stamp duty holiday or unable to find their ideal property due to a stock shortage, some instead turned their attention to updating and enlarging their current homes.

Previously this was often to create more space, but the focus is increasingly on affordability. As Money.co.uk reported in November 2022, the average cost of moving house is over £17,000. In the current climate, this is a bill some would rather avoid. Instead, they are looking to leverage the equity in their current home to fund renovations, removing the need to move. This also saves on the stamp duty bill many would be facing.

The ability to think outside the box when it comes to how bridging loans can be utilised also shows how far the industry has come in terms of educating the consumer. In recent years, there has been much talk among both brokers and lenders that more needs to be done to inform borrowers about how versatile specialist finance can be. Both regulated bridging’s popularity and the many ways in which loans are being used suggest that this has been happening. Consumers – and especially homeowners – are understanding now more than ever that far from being a last resort, bridging can be a powerful tool.

This particularly applies to those using regulated bridging to redevelop their homes. Remortgaging is one solution but the process may be too lengthy for those who want to act quickly. Instead, bridging allows them to access funds fast while the up-to 12-month terms allow enough time to secure longer-term options, such as a remortgage.

Finding solutions

This need to urgently fund a renovation is something we encountered recently. Our client required a bridging loan of £66,300 to fund the completion of an annex in their relative’s garden. They were unfortunately experiencing deteriorating health including a lack of mobility and wanted to be closer to family while keeping their independence. In order to fund the works, they were looking to leverage the equity in their main residence which had an on the market value of £164,000. The annex was roughly 50% complete but no payment to the builders had been made and they were unable to continue without receiving the full costs. Understanding the delicacy of the situation, the client’s broker immediately reached out to our regulated team as it was imperative that the project wasn’t disrupted.

Knowing how urgent this case was, the legal checklist was sent out the very same day with the valuation taking place after two working days. The valuation report was returned within another three. In a total of 10 working days, we delivered a second charge bridging loan of £66,300 against the client’s main residence at 55% loan to value of the OMV. The term was set at 12 months. Our ability to complete so quickly ensured that the works could continue uninterrupted. Once finished, the client will move into the annex which will allow them to sell their main residence. The proceeds of this sale will then be used to repay their bridging loan.

Looking forward

While reasons for undertaking renovations are varied, we would be surprised if the demand for finances to fund works drops significantly this year. Why they are being used will be largely dependent on what happens to the economy in the next six to 12 months as well as the property and mortgage markets. Even though it’s hard to predict the impact of these factors, it goes without saying that lenders like MT Finance will continue to think outside the box to provide their clients with the solutions they need. 

For adviser use only. Please note this content has been supplied by our lender partner and as such, is their responsibility. No party shall have any right of action against Legal & General in relation to the accuracy or completeness of the information in this article.